Going forward, even if U.S. crude oil is imported via a third country, it will be eligible for preferential tariffs under the free trade agreement (FTA). Because FTA preferential rates apply only to direct shipment between signatories, U.S. crude, which often transits through third countries, has frequently missed out on the benefits.
The Korea Customs Service on the 26th announced a plan titled "Support measures for diversifying imports of Australian naphtha substitutes and U.S. crude oil."
First, the Korea Customs Service created a special exception to relax the "FTA direct shipment principle," which had been an obstacle to diversifying crude import sources, and decided to implement it immediately starting today. Until now, it was difficult to apply the preference to U.S. crude because it transited third countries during domestic transportation, but the new exception will allow it to receive FTA benefits.
Refiners can prove direct shipment using only existing materials, such as Automatic Identification System (AIS) vessel position information or crude measurement data, without obtaining new documents. A Korea Customs Service official said, "In one refiner's case, during last year's U.S. crude procurement, the company could not prove direct shipment and gave up FTA tariff benefits on 4 million barrels," adding, "With this exception, imports of U.S. crude can be increased significantly."
The Korea Customs Service also said it will classify "Australian natural gas liquids," a naphtha substitute, as petroleum products (HS 2710) rather than crude oil (HS 2709). Until now, due to unclear classification criteria by the World Customs Organization (WCO), the substitute had been classified as crude oil, triggering a 3% tariff and even a stockpiling obligation, which led the petrochemical industry to avoid imports.
With this decision, the stockpiling obligation disappears, allowing immediate processing upon import. The Korea Customs Service expects the industry will be able to secure 2.5 million tons per year of high-quality alternative feedstock, equivalent to about 16% of the petrochemical sector's total naphtha imports last year.
Lee Jong-uk, commissioner of the Korea Customs Service, said, "We will continue regulatory innovation across the entire supply chain for economic security items and focus our administrative capacity on stabilizing domestic energy supply and demand."